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Target: ₹1,400
CMP: ₹1,112.40
APL Apollo Tubes (APAT) over the years has created a moat with its strong execution capability, scalability, a wider distributor network, diversified plant locations and innovation of diverse applications for structural tubes.
The company is far ahead of its competitor with large manufacturing capacity of 2.6 mt (excluding newly commissioned Raipur plant of 1 mt), a diversified portfolio of over 1,500 SKUs and a huge distribution network of over 800 distributors as on FY22.
The Indian structural tubes market is expected to reach about 22 mt by CY30 from 4 mt in CY19 (about 17 per cent CAGR). APAT is set to capture a larger share of the growing market by adding capacity and expanding applications in diverse areas.
A majority of the incremental capacity (about 1.9 mt) is coming under the value-added product (VAP) segment such as color-coated products (CCP) (around 1 mt), which should increase margins from ₹4,154/t in H1-FY23 to over ₹5,500/t by FY25.
The rapid capacity expansion, leadership position, and high industry growth trends should lead to robust growth in sales volume. While the addition of high margin products from the Raipur unit and the growing share of VAP should result in margin improvement.
Key risks: Fluctuation in steel prices to impact margins; slower industry growth to lead to a muted demand outlook; an increase in working capital days to result in liquidity pressure; and lower entry barriers.
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